SUGAR CASE

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SUGAR CASE

• Brazil vs. EU (AB2005)

Marina Belozerova Anupama Chettri
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INTRODUCTION

• The international sugar industry is
  considered one of the last heavily protected
  agricultural sectors. The EU is one of the major
  producers and consumers of sugar and is also one
  of the most heavily protected markets. There was
  much speculation concerning the effect any
  changes to the existing regime in 2002 might have
  had on the world market. This presentation
  reviews the analysis of various facts and offers
  its own conclusions

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EU SUGAR INDUSTRY

• According to 2002 reports, EU-25 was the worlds
  largest consumer of sugar and the second largest
  producer of sugar. The EU consumed about 17.6
  million tons (raw value) equaling about 12
  percent of world consumption. Production was
  around 20 million tons.
• EU imports of preferential sugar were highly
  valued by ACP countries worth over euros 500m
  each year but make up just a fraction of
  Europes sugar supply, accounting for just 8 of
  Europes sugar supply.

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EU SUGAR INDUSTRY

• Since the early 1980s, the EU has significantly
  increased quotas for domestic sugar production
  far in access of domestic needs, creating a
  continual pressure to export.
• If EU sugar quotas were cut to their 1980 level,
  the internal market would be roughly in balance
• Instead, EU became the worlds largest exporter
  of white sugar.

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BRAZILS SUGAR INDUSTRY

• Brazil is among the world leaders in the
  production of sugarcane, sugar, and ethanol (fuel
  alcohol) and has a significant effect on world
  sugar prices.
• It is among the most efficient of all major sugar
  producers.
• The world sugar market was chronically
  over-supplied, and Brazil, as a major low-cost
  producer and exporter, had a critical role and
  responsibility in shaping the future of the
  market.

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Brazil vs. EU Dispute (WT/DS266)

• According to Brazil, the EC provided export
  subsidies for sugar and sugar containing products
  above its reduction commitment levels.
• Brazil explained that the EC intervention price
  system for sugar guarantees a high price for the
  sugar that is produced within certain production
  quotas (A and B quotas). Sugar produced in excess
  of these quotas (so-called C sugar) cannot be
  sold internally in the year in which it is
  produced.
• Under the ECs regulatory framework, exporters of
  C sugar are able to export C sugar at prices
  below its total cost of production.

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Brazil vs. EU Dispute (WT/DS266)

• According to the ECs Schedule for sugar the EC
  provided export subsidies in excess of its
  commitments to approximately 1.6 million tons of
  sugar per year.
• The export subsidies provided by the EC cover the
  difference between the world market price and the
  high prices in the Community for the products in
  question, thus enabling those products to be
  exported.

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Brazil vs. EU Dispute (WT/DS266)

• Brazil claimed that, by providing export
  subsidies for sugar in excess of its reduction
  commitment levels the EC is acting inconsistently
  with at least the requirements of
• - Articles 3.3, 8, 9.1(a) and (c),
  and 10.1 of the
• Agreement on Agriculture 
• - Articles 3.1(a) and 3.2 of the
  SCM Agreement and 
• - Articles III4 and XVI of GATT
  1994.

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HISTORY AND CONTEXT OF THE CASE

• September 27, 2002
• Brazil and Australia commenced consultations
  in the DSB against the European Union over its
  sugar subsidies. The two countries say that the
  EU subsidies are trade distortive and fall out of
  WTO rules. Due to export subsidies, sugar was
  sold on the global market at what Brazil says
  said below the cost of production.

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HISTORY AND CONTEXT OF THE CASE

• 9 July 2003
• Australia, Brazil and Thailand each
  requested the establishment of a panel.
• 21 July 2003
• The DSB deferred the establishment of the
  panels.
• 29 August 2003
• Further to second requests to establish a
  panel from Australia, Brazil and Thailand, the
  DSB established a single panel at its meeting.
• September 2003
• The following countries reserved their
  third-party rights
• Barbados, Canada, China, Colombia, Jamaica,
  Mauritius, New Zealand, Trinidad, Tobago, US,
  Belize, Cuba, Fiji, Guyana, Paraguay, Swaziland,
  India, Madagascar, Malawi, St. Kitts, Nevis, and
  Tanzania.

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HISTORY AND CONTEXT OF THE CASE

• December 2003
• Australia, Brazil and Thailand requested the
  Director-General to determine the composition of
  the panel. On 23 December 2003, the
  Director-General composed the Panel.
• 23 June 2004
• The Chairman of the Panel informed the DSB
  that it would not be able to complete its work in
  six months due to the complexity of the matter
  and that the Panel expected to complete its work
  by early September 2004.
• 15 October 2004
• The Panel circulated to Members its separate
  but identical reports with respect to WT/DS283,
  WT/DS266 and WT/DS265.

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DECISION OF THE PANEL

• The Panel found that
• The European Communities total exports of sugar
  exceeded its quantity commitment level, in
  violation of Articles 3.3 and 8 of the Agreement
  on Agriculture. 
• The European Communities provided export
  subsidies within the meaning of Article 9.1(a) of
  the Agreement on Agriculture to exports of
  ACP/India equivalent sugar since 1995.

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DECISION OF THE PANEL (Continued)

• The Panel also found that
• The European Communities provided export
  subsidies within the meaning of Article 9.1(c) of
  the Agreement on Agriculture to its exports of C
  sugar since 1995.
• The European Communities did not demonstrate that
  its exports of sugar in excess of its commitment
  level are not subsidized (as required by Article
  10.3 of the Agreement on Agriculture)

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PANEL RECOMMENDATION AND SUGGESTION

• The Panel recommended that the DSB request the
  European Communities to bring its EC Council
  Regulation No. 1260/2001 into conformity with its
  export subsidies obligations under the Agreement
  on Agriculture.
• The Panel suggested that the European Communities
  consider measures to brings its production of
  sugar in line with domestic consumption while
  fully respecting international commitment
  (pursuant to Article 19.1 of the DSU)

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THE APPEAL PROCESS

• 20 Jan 2005 EC filed Appellants Submission
• CLAIMS OF ERROR
• - Panel misinterpreted notions of claim and
  argument
• - Simple reference to the measure at issue as
  the export subsidies granted under EC Regulation
  1260/2001 is not sufficient for identification of
  specific measure at issue (Article 6.2 of the
  DSU)
• - Panel requests did not present the problem
  clearly (Article 6.2 of the DSU)
• - Article 10.3 of the Agreement on Agriculture
  relating to burden of proof does not exclude or
  limit the application of Article 6.2 of the DSU

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THE APPEAL PROCESS (continued)

• CLAIMS OF ERROR (continued)
• Panels finding that Footnote 1 to Section II,
  Part IV of the ECs schedule is of no legal
  effect
• Panel erred in finding that sales of C Beet are
  financed by virtue of governmental action
  within the meaning of Article 9.1(c)
• Panels conclusion that alleged violations of the
  Agreement on Agriculture resulting from the
  exports of C sugar nullified or impaired benefits
  to Brazil (and other Complaining Parties)
• Panels finding that the Complaining Parties
  acted in accordance with Article 3.10 of DSU and
  with the principle of good faith

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DECISION OF THE APPELLATE BODY

• 28 April 2005
• The Appellate Body upheld
• The Panels finding that alleged payments fell
  within the meaning of Article 9.1(c) of the
  Agreement on Agriculture, in the form of
  low-priced sales of C beet to sugar producers,
  fell within the Panels term of reference
• The Panels finding that Footnote 1 to Section
  II, Part IV of the European Communities Schedule
  does not modify the European Communities
  commitment level

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DECISION OF THE APPELLATE BODY

• The Appellate Body also upheld
• The Panels finding that the alleged payments
  are financed by virtue of governmental action,
  within the meaning of Article 9.1(c) of the
  Agreement on Agriculture
• The Panels report that there is prima facie
  evidence that the European Communities were
  providing export subsidies, within the meaning of
  Article 9.1(c) of the Agreement on Agriculture,
  to its exports of C sugar since 1995

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COMPLIANCE

• 13 June 2005 EC expressed need for reasonable
  time to implement recommendations and rulings
• 9 August 2005 Complaining parties requested for
  arbitration as the parties were unable to reach
  an agreement on reasonable time
• 28 October 2005 Award determining the
  reasonable time to be 12 months and 3 days,
  expiring on 22 May 2006
• 8 June 2006 Brazil (Australia and Thailand)
  reached individual Understanding with the EC

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AREAS OF IMPACT

• EU Sugar Production
• EU Sugar Consumption
• ACP Sugar Production
• EBA Sugar Production
• Least Cost Countries Production
• World Market for Sugar

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References

• United States Department of Agriculture/Foreign
  Agricultural Service Report Sugar and the
  European Union Implication of WTO Findings, and
  Reform, available at www.fas.usda.gov/htp/sugar/20
  04
• Panel Report, European Communities Export
  Subsidies on Sugar, WT/DS266/R (15 Oct. 2004)
• Appellate Body Report, European Communities
  Export Subsidies on Sugar, WT/DS266/AB/R (28 Apr.
  2005)
• Award of the Arbitrator, European Communities
  Export Subsidies on Sugar, Arbitration under
  Article 21.3(c) of the Understanding on Rules and
  Procedures Governing the Settlement of Disputes,
  WT/DS266/33 (28 Oct. 2005)
• Oxfam Briefing Note The Challenge to the EU
  Stop the Sugar Dumping! (Nov. 2002)
• http//www.oxfam.org/en/policy/briefingnotes/doc0
  21114_sugarupdate
• Sugar and the European Union Implication of WTO
  Findings, and Reform, available at
  www.worldtradelaw.net/cr/ds266-1
• Export Subsidies on Sugar Global Issues,
  Australian Government Department of Foreign
  Affairs and Trade, available at
  http//www.dfat.gov.au/trade/negotiations/disputes
  /265_export_subsidies_sugar_q_a.html
• Special Issue WTO Panel Ruling on EC Sugar
  Subsidies, and the WTO Framework Agreements,
  Caribbean Regional Negotiating Machinery (19 Aug.
  2004), available at http//www.un.org/special-rep/
  ohrlls/NewsArchive/1920aug200420RNM20update.ht
  m